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The fiscal crisis in California continues. Despite a last-minute bipartisan budget agreement last summer, which supposedly resolved the state’s acute budgetary deficit-temporarily, largely through accounting gimmicks and major program cuts in essential areas, such as education and prisons-the state’s Controller, John Chiang, is now projecting that California’s tax revenues are already $1 billion below what they were forecasted at for this point in the fiscal year.

With America’s most populous state continuing to shed jobs at a rapid pace, it is no surprise that the state’s coffers are taking in significantly less tax revenue. There are already doomsday forecasts for another massive deficit for next year’s budget.

What is significant about California’s plight is that it is a harbinger for what lies ahead for America as a whole. With the U.S. national debt and annual deficits skyrocketing, it seems inevitable that at some point in the future Washington will be left in the place that Sacramento currently finds itself; down a fiscal rat hole, desperately trying to pay its bills with IOUs.

When he unseated the Democratic Governor of America’s most populous state six years ago in a recall election, Republican challenger Schwarzenegger lambasted incumbent Gray Davis as a typical “tax and spend” liberal. In his thick Austrian accent, Arnold Schwarzenegger promised a new dawn of uninhibited free enterprise growth, facilitated by fiscal responsibility on the part of state government combined with a low rate of taxation. Well, another political promise bites the dust. However, Governor Schwarzenegger demonstrated uncharacteristic candor when he addressed a joint session of the California legislature and accurately outlined the brutal reality underlying California’s dire fiscal crisis.

California is financially bankrupt. The state coffers are bone dry, confronting a $24.3 billion budgetary deficit. This appalling number is likely to grow worse, as the state’s official unemployment rate, currently at 11.5%, is projected to exceed 12% by the end of the year. Already, California is experiencing its worst unemployment rate since the Great Depression. Factoring in discouraged and underemployed workers, the actual unemployment rate in California exceeds 20%. Amid this melancholy economic stew, the state’s legislature is mired in partisan political paralysis. With state government a triumph of ineptitude over responsibility, it appears that desperation is the only remaining option for America’s largest state. In this case, desperation means asking the U.S. taxpayers for a Federal bailout.

For the present, the Obama administration has been resistant to being the banker of last resort for the state of California. The reasoning is cogent in the extreme; if the U.S. government bails out California’s state government, a precedent will be created whereby every deficit-ridden state, county and municipal governmental authority in the U.S. will come crawling to Washington D.C. with hat in hand. However, political realities often override sound economic calculations. California’s powerful congressional delegation will undoubtedly impose severe pressure on President Barack Obama, forcing him to ignore the danger of precedent and add California to the already long list of corporate wards of the U.S. ship of state.

If California were an independent country, its $1.8 trillion GDP would rank as the sixth largest in the world. It is the leading center of high technology and manufacturing in the United States, and it is no exaggeration to state that California’s economic fortunes are interlinked with the remainder of the United States. Unfortunately, all the indicators for California’s economy are pointing south with abandon. The University of California at Santa Barbara recently released its highly regarded state economic forecast. According to the director of the center that publishes the UCSB forecast, economist Bill Watkins, “California’s economy continues its descent into the depth of its most serious recession since World War II…It is possible that when this is over this recession will meet the technical definition of a depression in California.”

If California is headed towards a devastating economic depression, how can America avoid a similar destination? In the meantime, political incompetence continues to reign in Sacramento, while the rating agencies brace for a major downgrade in California bonds.

With the financial and corporate sector having been proven wanting in responding to the Global Economic Crisis, it has been left to the politicians to rescue the global economy from a second Great Depression. What is now occurring in the political corridors of power in California reveals the entrenched limitations of what elected officials are capable of doing amid the unfolding economic disaster. In the final analysis, it may be that California will face the inevitability of defaulting on its debt, or as with the U.S. government bailout of the auto industry, some form of structured bankruptcy.

Could this be what the United States as a whole is in store for, once its wallet and credit are as dried up as in the forlorn state of California?